Assessment of the impacts of demand curtailments in the DAMs: issues in and proposed modifications of FERC Order No. 745
The Federal Energy Regulatory Commission (FERC), in its initiative to incentivize demand response resources (DRRs) to participate in the day-ahead markets (DAMs), enacted Order No. 745. The Order mandated each ISO/RTO to perform a monthly cost-effectiveness test, the so-called net benefits test (NBT), that determines the monthly threshold price that serves as the economic signal for the dispatch of DRRs. The determination of the threshold price without explicit consideration of the grid and its associated constraints prompted the motivation for our investigation. Analytical considerations of the issues were accompanied by extensive numerical studies based on simulation. In our studies, we identify the two key unintended consequences emanating from the DRR participation in the DAMs. One is the existence of instances where the dispatch of DRRs increases the purchase payments of loads not participating in curtailment provision so that those buyers are worse off due to the DRR demand curtailments presence in the DAMs. The second set of unintended consequences consists of the cases where the participation of DRRs results in higher prices to their remaining loads under the FERC compensation rules. The NBT fails to test for these unintended consequences and based on our simulations studies, such events may occur frequently. In light of the results of these investigations, we propose specific modifications to the NBT. The modifications are in three principal areas – data usage, explicit consideration of transmission system in the determination of the threshold price and an additional test to guarantee that no buyer is worse off in the post-curtailment state than in the pre-curtailment state. We propose to limit the data to on-peak LMPs instead of the representative offer curve data based on data from all the hours of the month. We propose the replacement of the system-wide threshold price by node-specific threshold prices at each node to explicitly account for transmission considerations. To ensure that no post-curtailment load is worse off than in the pre-curtailment conditions, we propose the introduction of a simple test to verify that this criterion is met. The proposed modifications result in nodal threshold prices and this explicit transmission consideration is effective in avoiding the issues we identified with the FERC NBT. We illustrate the ability of the proposed modifications to address these issues by presenting a representative sample of simulation studies from the testing we performed. The results of the testing we performed indicate that the instances of higher post-curtailment purchase payment are reduced by at least an order of magnitude and in each case every node in the system is assured that it is not worse off due to demand curtailments. The proposed modifications result in an important reduction in the unintended consequences due to demand response participation.
power system economics, demand response, net benefits test
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign